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What she really means is that the wealthy are immune from the pressure that higher interest rates impose on the rest of the population, and even gain from them, and as a result of their considerable, and relatively excessive, spending power within the economy inflation is continuing at above 2% and there is no real prospect of that changing.

The consequence is that she admitted that the single tool that she claimed was available to the Bank of England to control inflation – which she said is the interest rate, whilst conveniently ignoring both quantitative easing and the massive current quantitative tightening programme – is not able to bring the rate of inflation down at present because the richest in the UK are insisting on continuing to spend. This is despite the massive economic pressure being brought to bear on those with lower incomes, either from downward pressure on wages, which the Bank of England is heavily promoting, or from increased interest rates.

You would think, as a result, that Mann would realise that keeping interest rates high was a futile exercise. Far from it, though: she is still an advocate for raising them.

What is not hinted at in the reports of what she said are any indications that she thought that other tools might be brought into use to tackle this issue. Raising taxes on the wealthy would, of course, be one way to address this issue. That is glaringly obviously necessary, given the problem she outlines. I am sure it was not said.

The wealthy do not consume all their income. Therefore changes in interest rates do not change their consumption habits – they can dissave if required.

Raising taxes upon hte wealthy in order to reduce inflationary pressure does not work. For the wealthy do not consume all their income, have savings, and can therefore dissave to maintain their consumption.

7 thoughts on “Oh Dear”

  1. Knowing absolutely nothing about finance, I’d just stop printing money if I wanted to reduce inflation.

    Presumably the resulting riots would soon have me hanging from the nearest lamp post.

    PS. Just to be difficult, I’d also abolish all the green bullshit, and insist that all electricity be generated by the cheapest coal available. Once I ran out of Greens to throw into the furnaces, that is.

  2. On civil unrest, what’s the best way to stop a tractor? Even blocking a road with a double decker or a decapod doesn’t work, they can just go round the side on the mud.
    The pointless ones carrying No farms, No food placards are the ones I’m thinking about, conveniently ignoring all the times in history when there were many farms and still no food.

  3. The Meissen Bison

    How does one set about acquiring relatively excessive spending power, it sounds nice but perhaps absolutely excessive spending power is nicer?

  4. The Meissen Bison:

    “relatively excessive spending power” means “has more money than I think you should have.”

  5. What high interest rate is this then? Current UK real rate is 1.25%
    The way to reduce inflation is to increase productivity. But, of course, everything Spud’s in favour of reduces productivity. Spud should do his bit. Go & get a proper job doing something useful.

  6. High interest rates and high inflation go together.
    Mortgages are the biggest household debt items. Back in the late 80’s when inflation was very high a crippling mortgage was reduced to something pretty insignificant after just a few years. High inflation can be very good for debtors, but that same inflation erodes savings that have a negative net rate of interest.

  7. AndyF: yes, I did well out of that in the 70s – a bungalow that increased in value enough to move up to something much nicer after 8 years and a nice little bonus from the endowment 25 years later. Yes, I’m one of those Boomers who is apparently grinding the faces of Millennials.

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